WILFORD: Illinois Looks To Raid Private Retirement Accounts To Solve Its Pension Crisis
Illinois has a severe pension crisis. That’s probably an understatement — the state has over $130 billion in unfunded pension liabilities alone. Last summer, Moody’s reported that the state made the record books for the largest ever pension debt-to-revenue ratio, with pension debt equaling 601 percent of total government revenue. So what are some in the state proposing to solve the problem? Going after money in private retirement accounts, of course.
Two state policy groups, the Civic Committee of the Commercial Club of Chicago and the Civic Federation, have come out in favor of ending an exclusion in the state’s income tax for pension income and federally taxable Social Security income. Doing so, the organizations argue, would raise $2.5 billion in revenue, equivalent to a 0.5 percent income tax rate hike and a 0.85 percent corporate tax rate increase.
The problem, of course, is that Illinois does not have a revenue problem. Spending on pensions grew 663 percent between 2000 and 2018, and is projected to continue to grow. This isn’t surprising, given that 60 percent of state pensioners retire in their 50s and pensioners’ direct employee contributions equal only about 6 percent of the benefits they receive. The state is like a teenager with its first credit card, except it never grows up and stops thinking of its credit limit as its bank account.
Despite this, the state keeps trying to fix the problem with tax hikes. In 2017, Illinois lawmakers increased income taxes by nearly a third, raising rates from 3.75 percent to 4.95 percent, overriding the governor’s veto. A year later, the state still faced a record budget deficit of $14.6 billion in general fund revenue.
Unfortunately, the state is caught between a rock and a hard place. The state’s Supreme Court has ruled that reforms to the state’s pensions are unconstitutional, even reforms that maintain already-earned benefits at their current levels while reforming the out-of-control rate of growth for future benefits.
That’s left the state seeking revenue wherever it can get it, even from private retirees. Of course, if Illinois wanted to eliminate exclusions in the name of broadening its tax base and lowering rates across the board, that’s a different conversation. But Illinois is targeting private retirees purely as a source of revenue to pay for its public pension profligacy.
Unfortunately, Illinois isn’t the only state with this sort of severe pension crisis. Unfunded state pension liabilities have reached $1.6 trillion across the country for fiscal year 2017. Other states with absurd pension debt-to-revenue ratios include Connecticut (359.8 percent), Kentucky (331.7 percent), New Jersey (290.4 percent), and Maryland (262.7 percent).
But Illinois’s proposal shows that it may not just be younger people who are stuck with the bill for states’ inability to balance the books. The longer the state’s spending problem goes unaddressed, the more likely it is that the pain of fixing its pension debt will be visited upon the young and old alike.
A better solution is reform to out-of-control pension benefits, and soon, including through reform of the state constitution. The solution to overspending is fiscal responsibility, not going after the savings of private citizens who saved responsibly their whole lives.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.